SIMON LAMBERT: Buying a home is the best investment most of us ever make, but ask yourself these questions first

Buying a home is likely to be the best long-term investment most people ever make.

History shows property will probably underperform the stock market over 25 years, but the beauty of a repayment mortgage is that it provides the kind of discipline most investors just don’t have - and at the end you’ll own an asset worth a small fortune.

Of course, a home is not as flexible as an investment fund - and the cost of running it is higher - but then you can’t live in a fund as you build up your holding over a few decades.

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And as you will thus need to rent somewhere to live, so your monthly investment will be limited to the saving between mortgage payments and your rent (if one exists) – and once the mortgage is paid off that difference suddenly swings the other way.

It doesn't deliver the income you can get from dividends, has no earnings to grow and can feel like a heavy burden sometimes, but a home is a long-term appreciating asset that someone will lend you a lot of money to buy at a generally very agreeable rate of interest.

There is also a handy trick whereby wage inflation should dramatically erode your debt over 25 years, by comparison with how rents will typically rise with price inflation over that same period.

If you can put down a reasonable deposit and ride out any storms in your personal finances, then buying home looks like a solid lifetime investment.

The problem is that over the short-term we can get hobbled by the temptation to overpay – and that makes times like now, when house prices are high and mortgage rates are low, particularly risky.

They were prevented from falling back to their long-term relationship with wages during the financial crisis slump by ultra-low interest rates.

I think house prices are now being maintained at unaffordable levels by a concoction of artificially low mortgage rates thanks to Bank of England and government support and, in the case of Help to Buy, effectively free money.

I also think the measures being taken now to prop up the property market are misguided. And I doubt that the rises we are seeing from a point where houses are already overpriced is going to do the economy any good in the long run and we'll probably see property values rise for some years before coming a cropper again.

But none of that convinces me that over the long-term buying your own home with an affordable repayment mortgage remains anything but a wise move. And to do that, you have to buy a house.

So what can you do when weighing up a home purchase?

You could wait and hope prices fall - or your wages rise substantially.

This involves an element of putting your life on hold, however, and it’s still a gamble, as property prices have a tendency to manage to keep on rising even when common sense says they shouldn’t.

Alternatively, you could think long-term and try to build in the best margin of safety possible.

That means not panic buying, ditching any thoughts of ‘I must buy now or I’ll miss the boat’, and asking yourself some serious questions about how things stack up.

To that end here are the six things I think are essential to ask yourself.

1. Can I afford my mortgage with interest rates 3% higher?

2. Could I live here for at least five years?

3. Can I add some value?

4. If I let it would the rent more than cover the mortgage?

5. What’s the price per square metre and how does that measure up against other properties I'm looking at?

6. Can I negotiate a lower price?

Essentially, they boil down to a series of measures of how much your home would be at risk if your personal finances, employment or the property market took a turn for the worst.

They combine some tests on ability to pay, the home's suitability, value and potential and also the emergency exit strategy of checking it would rent for more than the mortgage.

Hopefully, most of the safety measures will never need to be called upon and the added value bits will pay off.

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